Yesterday was the first day of trading for 2016, which started off with the Australian dollar looking reasonably strong. The Australian Dollar to US dollar (AUD/USD) Exchange rate was crawling towards the 0.73s and made it to a daily high of 0.7290. The Australian Dollar to UK Pound Sterling (AUD/GBP) also looking to make it to a momentous level of 0.50 however was only able to make it to a daily of 0.4946.
The rally in the ‘Aussie’ stopped short with the release of China’s December Caixin Manufacturing Purchasing Managers Index (PMI) with a dismal result falling from 48.6 in November to 48.2 in December. This was well below the forecasted 48.9 the analysts had hoped for. Figures indicated a reduction in staff numbers and lower product requirements.
There was some rather concerning comments made by Caixin’s Chief Economist He Fan in the accompanying statement, ‘the forces driving an economic recovery have encountered obstacles and the economy is facing a greater risk of weakening’.. ’the government needs to fine-tune macroeconomic policies accordingly so the economy does not fall off a cliff.’
The markets reacted strongly to the data release and immediately following the release all improvements seen in the Australian Dollar throughout the month of December where erased within hours. The CSI 300 stock market crashed 7% before the market was halted for the day following on from the result.
The expectation for 2016 from the early reports released by China indicate an easing basis with a series of rate cuts and stimulus expected for the year ahead, John Zhu, a greater China economist at HSBC, explained to CNBC that ‘What we need to see in 2016 is further easing, more aggressive easing on both monetary and fiscal policy to really provide a substantial boost to lift the economy away from this low growth or contractionary, deflationary state that we’re in.’
Further Manufacturing PMI data was released overnight by both the UK and the US, both of which were below the forecasted figures however these were generally ignored as the concerns for China overshadowed these figures.
The UK released Manufacturing PMI with a result of 51.9 down from 52.5 and the US released ISM Manufacturing PMI with a reading of 48.2 down from 48.6.
The Australian Dollar to US Dollar (AUD/USD) Exchange Rate lost close to 1.5% overnight and is now trading at 0.7189
The Australian Dollar to Pound Sterling (AUD/GBP) Exchange Rate lost over 1.5% overnight and is now trading at 0.4876